PALO ALTO, Calif. — A series of glass cabinets lines the back wall of this Stanford building, the shelves crowded with health technologies dreamed up here. There’s a bottle of thick blue gel that helps drugs stick inside the colon, a heartbeat-tracking patch, an under-the-sheets sensor that buzzes to prevent night terrors, and a baby doll with a dozen redesigned versions of an umbilical catheter lying next to its blanket.
“My favorite thing is just looking at some of the technologies that have come out,” said Dr. Paul Yock, pointing to a low-cost substitute for the pricey ventilators found in the intensive care unit.
The shelves are a hall of fame of sorts for Yock, a cardiologist and bioengineer who runs Stanford’s Byers Center for Biodesign. The health technology hub is home to a fellowship program that gives physicians and engineers 10 months to pinpoint an unmet medical need, brainstorm a new tool to tackle it, and develop a business plan that might actually work. Since the center was founded in 2001, Yock has mentored more than 161 fellows who have gone on to found 50 companies. Stanford was the first to found such a program, but a slew of universities have followed suit and founded their own biodesign centers.
That has given Yock has a mental filing cabinet of health tech companies — the ones that clawed their way into the clinic, the ones that crashed and burned, the ones that looked smart and quickly got scooped up by bigger fish. It’s also given him a perhaps unrivaled perspective on what it takes for a digital health startup to succeed — and why so many of them fail.
While he’s just one person, and Stanford just one program, Yock and Biodesign do have a good track record of getting projects off the ground. Of the 50 companies founded by Yock’s fellows, just two have folded. Six were acquired, and “the rest are improbably still alive and well,” according to Yock. One of its most well-known spinoffs, the wearable heart monitor company iRhythm, went public with a $107 million IPO in 2016. Another, the asthma-monitoring startup Tueo Health, was acquired by Apple (AAPL) in May.
Yock told STAT what he thinks goes into the “secret sauce” of a successful health tech startup:
Know the clinical need. Like, really know it
When the new cohort of fellows arrives each August, Yock promptly drops them into Stanford’s clinics for two months. Their task: find 200 unmet clinical needs. That could be a symptom of a disease that isn’t being treated, or an administrative task that takes up too much of a doctor’s time, or a diagnostic tool that’s difficult to use. The caveat: The needs have to be important enough that, if there were a solution, it would make a meaningful impact for providers, patients, or payers.
Then comes the whittling. The fellows spend another two months cutting down their lists, looking at disease prevalence, the importance of the issue, and the competition.
Yock said that casting such a wide net — and then, slowly but surely, narrowing it down — prevents fellows from “falling in love” with a single clinical need without truly thinking it through.
“All clinical needs are compelling, right? I mean, people are suffering from those things,” Yock said. “But not all clinical needs are worth 10 years of your time and tens of millions of other people’s money. And so the discipline we’re trying to teach is, of all of those needs that look important, finding ones that really have the right characteristics that make them worth investing in.”
Get a grasp of the economic landscape
“Increasingly, it’s true that just getting the clinical need right isn’t enough any longer,” said Yock. A good idea is necessary, but a clear understanding of the economic need is just as critical.
“It is still stunning to me how far startups get with a major problem in one of those two areas,” Yock said.
To prevent that, Yock has the fellows drum up a handful of possible solutions for the three or four clinical needs that seem the strongest. They’re left with a dozen possible technologies. Then, they bring in tougher filters that look specifically at financial hurdles and regulatory hoops for each idea. Is there an existing reimbursement code for this type of technology, or would a new code need to be created? What kinds of studies would be needed for FDA approval? How much will the new technology cost insurers, and will it pay them back in any way? Could it save money?
“FDA is appropriately hard at this point. But a huge barrier is early-stage reimbursement for new health technologies,” he said.
From Yock’s view, investors seem to be growing more savvy about only backing companies that check off both the clinical and economic boxes. In large part, that’s because they’ve seen so many digital health companies flop.
“There’s enough roadkill out there. People are aware that those are the real killers and are being more careful about what they’re doing,” he said.
Reach for the right size
Knowing how much money you’ll need, and how lean you can operate, is critical to a company’s success.
“There are certain projects where you need to spend a lot of money,” Yock said. Venture firms are sometimes willing to make big bets on those projects, as in the case of HeartFlow. The company, which spun out of Stanford, is working toward a new, non-invasive way to diagnose coronary artery disease using a CT scan. Yock noted the company had to raise a “boatload of money” — $476 million, according to CrunchBase — to develop and test the technology.
On the other end of the spectrum are health tech companies that work with the smallest team possible. That’s the case with many of the companies that came out of Biodesign and are working on more incremental technology. And working that way can prove successful. Yock pointed to one of the Biodesign spinouts, called Ciel, which was working on a device to address pneumonia that develops in patients on ventilators. Ciel’s founder kept the team small and the development process lean, raising just over $1 million. It was acquired by a bigger medical device maker in 2017. It’s one of many of what Yock calls successful “LIMO” companies — little in, moderate out.
This one, Yock acknowledged, is a “trite” piece of advice. But it’s critical to have the right people in place to get a company off the ground — including people who have been around the block a time or two.
“We produce these absolutely brilliant first-time founders, and our instruction to them is ‘Go do it,’” he said. “But please, pull people who have experience in the sector to work with you.”
His other piece of somewhat cliche advice? Be patient. It takes time to understand how to create health technologies that will work for patients and providers, but also regulators and insurers.
“There’s much more grinding before you get to inventing in the health space,” he said.